US Q2 GDP: Not everything was rosy - NBF

The first estimate of Q2 GDP growth in the US showed came in at a consensus-topping 2.1%, following a reading of 3.1% for the previous quarter. Krishen Rangasamy, analyst at National Bank of Canada points out that while historic GDP revisions do not significantly alter output gap picture,  the weaker-than-expected handoff from Q4 last year forces them to downgrade their 2019 growth forecast.

Key Quotes: 

“Growth averaged 2.6% annualized in the first half of 2019, well above the Congressional Budget Office’s 2.1% estimate of potential.”

“While inventories and trade provided the expected drag on GDP, domestic demand offered more than just an offset courtesy of consumption and unexpected strength for government spending ─ the latter’s contribution was actually the biggest in a decade reflecting perhaps a catch up after the shutdown of government in early parts of the prior quarter.”

“Not everything was rosy in today’s GDP report as evidenced by the drag from trade, weak residential investment and the overall decline in non-residential business investment. Also, while the revisions were largely positive over 2014-2018, 2018Q4 growth was downgraded from 2.2% to 1.1%.”

“This uglier-than-expected handoff forces us to lower our 2019 U.S. GDP growth forecast by two ticks to 2.3%, even assuming the economy grows near potential in the second half of the year.”